Those who are regular readers to this blog will know that I am not a fan of the Affordable Care Act (ACA), a.k.a.Obamacare. Amazingly, the Republicans have created a replacement plan that is even worse called the American Health Care Act (AHCA). In what appears to be an effort to avoid making anyone mad, they have basically taken out the parts of Obamacare that sort of made it work, but that people didn’t like because it cost them money, and left the things in that made it financially unstable, but which everyone loved because they were “free.” Having a lot of people getting free stuff, with no way to pay for that free stuff, is a sure-fired way to bankrupt an industry. The ACA nearly destroyed the heath insurance industry – the AHCA will surely finish it off if it passes as it is.
The things people loved in Obamacare:
–Subsidies (paid for by taxpayers and people paying full freight on the unaffordable, Affordable Care Act insurance)
–Keeping young adults on parents’ health insurance until 26 (really, this provision has no effect since young adults rarely get sick, so their health insurance would be really cheap if they ever left their childhood bedroom)
–Coverage of preexisting conditions (the most unaffordable provision, since this allows people to buy insurance on the way to the hospital)
–No lifetime or yearly maximums (should be included, but raises rates)
Things people didn’t like:
–Penalties for not buying health insurance (the only way to make premiums affordable)
–Collection of healthcare data by the Feds (creepy)
–Forcing religious businesses and entities to by insurance that included abortant drugs (so much for the 1st Amendment)
So the AHCA tries to keep the things people liked, but get rid of the biggest thing that people didn’t like: being forced to buy insurance, particularly really expensive insurance for those who are young because they were covering all of the high costs of those who are old. With the ACA, many young people wisely decided that they were better off paying the penalty, so they didn’t buy the insurance, which pushed the price higher for everyone else, until the ACA entered the death spiral. The AHCA does nothing to fix this issue, and even makes things worse, since now those who don’t buy insurance until they are sick don’t even pay a penalty.
The secret to reducing the price of healthcare, and making getting it a non-issue for virtually everyone just as buying food is a non-issue for anyone with a job, is to get most people to actually pay for their healthcare. This can only be accomplished if you make sure that they put enough money aside so that they have the money when needed, rather than spending every dime and then not being able to pay their medical bills. Not even requiring people to buy health insurance is a sure recipe for having lots of people with no money to pay the bills when they have an emergency. This means the costs for those who actually do pay will get even higher.
A good health care plan has people saving up money when they are well to pay the inevitable times where they will need healthcare. It also means having them mainly pay for the services they receive, as opposed to having insurance that covers everything regardless of cost, to give them an incentive to use less health care or choose lower cost options when it really isn’t important. Basic, routine care like physicals and ear infections should be paid for by individuals with money they have saved for medical expenses. The large, unexpected expenses that rarely happen to an individual like the long hospital stay due to needing to replace a kidney should be covered by major medical insurance. Insurance only works if most people never use it, since then it is cheap for everyone and since you want to make sure that the few people who incur the big expenses are covered. The solution is therefore the following:
1. Require that everyone sets up a Health Savings Account (HSA) and contributes a required portion of their income to the account, up to a certain dollar value of income. The contribution percentage would decline after a certain amount is saved in the HSA, meaning that those who used little healthcare would have a higher take-home pay, providing an incentive to maintain high account balances and not spend money unless needed. Those who cannot contribute enough to cover reasonable costs would have their contributions subsidized. Any money left at death would be passed to heirs.
2. Require that everyone also buy major medical insurance – insurance that pays for costs above a certain, large threshold, like $20,000. Ensure that there are enough insurance companies competing that the price of this coverage is as low as possible and the service is as good as possible. These policies must be clear on what is covered and government should fine any company that does not immediately pay for a covered service (no denying payments for sick people, hoping they won’t dispute the mistake and just pay the cost themselves). The threshold could also be raised as an individual increased the amount in his HSA, thereby lowering the premiums. For example, an individual with $40,000 in an HSA could have a major medical plan with a $40,000 deductible, which would cost less than one with a $20,000 deductible.
3. Develop a high risk pool, subsidized by taxes, that covers those with really bad medical luck (like a major disease at 18 years old before starting a job and getting major medical insurance). These individuals are rare so most people would be able to cover themselves with everyone saving up a portion of their income in an HSA, so spreading the risk out over the whole population won’t cost much.
4. Require that all medical providers post costs and stick to those costs (no preference for one patient over another). This would allow individuals to shop around for the best deal and eliminate price disparities as currently exist.
What would things be like after this plan is implemented? Most people would just pay for their medical treatments out of their HSA when needed because they would have the cash saved up. There would be no need for the doctor’s office to file insurance, reducing costs. In addition, because most people were paying their bills and you wouldn’t need to pay for other people, costs would drop dramatically. Imagine $20 office visits, $15 X-Rays, etc…. Hospital stays would be maybe $150 a day instead of the thousands they now cost per day.
There would also be incentive to save money, and therefore people would pick the cheaper option when it really didn’t matter and not use healthcare when not really needed. This would cause less demand, and therefore lower prices. Doctors could also provide a discount for procedures that really reduce costs like certain exams. Prices would decline to the point where getting healthcare is no big deal for most people. With most everyone paying for their own healthcare, the cost to cover those who could not would be easily obtained through charity or taxes. Now that’s health insurance reform.
Contact me at [email protected], or leave a comment.
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
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